Bond markets and currency hedging (II)

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1.12.
Forex swings will upend lucrative yen carry trade
https://www.reuters.com/breakingviews/forex-swings-will-upen…
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Foreign exchange investors have been enjoying a quiet, rich life. Predictable monetary policies have made it easy to borrow yen and invest it in U.S. dollar assets and those of other countries where interest rates are high.

But as central banks start moving in the opposite direction, those “carry trades” will become a lot riskier.

In recent decades, Japan has been a graveyard for investors looking for domestic returns. Notably those who bet against its government bonds in a trade so bad it became known as the “widow maker”. Foreign exchange traders beg to differ: the carry trade has been a sure-fire money maker this year. That’s due to the huge gap in short-term interest rates between Japan, where they are -0.1%, and other countries.
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That’s about to change. Markets expect the Fed to cut rates at least twice next year, according to derivatives pricing collected by LSEG. Those expectations have already sent an index that tracks the dollar against a basket of foreign currencies to its lowest level in more than two months on November 20.

As for Japan, 43% of the fund managers polled by Bank of America in November think the central bank will increase rates in the first quarter of 2024.

As markets become choppier, new waves of volatility will drown out carry trades.

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31.7.
Carry Traders Are Using Weak Euro to Win Big in Emerging Markets
https://finance.yahoo.com/news/carry-traders-using-weak-euro…
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For carry traders battered by the dollar’s rally and higher US borrowing costs, the euro’s worst plunge since 2005 couldn’t have come one moment sooner.

Investing in emerging-market currencies with borrowed euros is raking profits of as much as 29% this year depending on the choice of the higher-yielding currency, according to data compiled by Bloomberg. The gains are being driven by the euro’s 10% drop against the dollar, which took the cross to parity for the first time in two decades.

Those who funded the same carry positions with the greenback had much less lucrative results: not only the overall strategy is failing for a third successive year, but most individual emerging-market currencies are also producing losses. Even in Latin America, profits have stalled after a stellar start. Needless to say, traders are switching.

“Funding carry trades by selling euro is becoming more common,” said Brendan McKenna, a currency strategist at Wells Fargo in New York. “The European Union looks more likely to fall into recession and geopolitical developments should weigh on the currency, making emerging-market carry trades funded by the euro an interesting option.”
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an dieser Fragmentierung von WO-Threads bin ich nicht schuld; das hier war eine Entscheidung anderer Leute:
https://www.wallstreet-online.de/diskussion/500-beitraege/13…